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Despite a drop in gas prices that has provided some near-term relief for Americans, elevated food prices and rent continued to keep cost of living at a painfully high level. The same is true for buyers in the housing market. The combination of elevated home prices, higher mortgage rates and slower income growth has reduced affordability and dampened both new and existing home sales. That said, while Americans’ incomes rose more slowly in July, those gains were not swallowed up by higher prices for the first time in the past few months. The latest revision on the second quarter Gross Domestic Product also offers some encouraging news last week, as both consumer spending and business investment have held up better than expected, suggesting a slightly stronger economy than previously reported.
New listings began declining year-over-year since June: For-sale properties added to the market were again down 15.8% from one year ago. This week marks a seventh straight week of year-over-year decline in the number of new listings and a second consecutive week with a drop of more than 10 percent. The ongoing trend suggests that homeowners are less eager to list their homes for sale compared to last year, even though today’s median listing price is more than 7.1% higher. So, while the market is seeing an improvement in the overall inventory level, the increase is mostly due to a drop in demand rather than an increase in new active listings.
New home sales tumbled in July: New home sales fell 12.6% in July to a 511,000-unit pace. July's drop is hardly a surprise given the sharp pullback in home builder confidence reported last week, as well as a pull back in buyer demand due primarily to lowered housing affordability. July's sales pace for new homes went down a whopping 29.6% from July 2021 and year-to-date sales were running 15.7% below their year-ago level. With sales slowing, the inventory of new homes has risen sharply. The number of new homes for sale rose 3.1% to 464,000 units, the highest level since March 2008. With Inventory of new homes rising to 10.9 months, price growth should moderate, while affordability could improve in coming quarters.
Consumer sentiment improved in August as inflation eased: The final estimate of the consumer sentiment index published by the University of Michigan came in at 58.2, up from 51.5 in July as well as the all-time low recorded in June. Despite the two-month improvement, sentiment among American households remains subdued compared to the same month of last year and to historical standards. Most of the increase in sentiment was due to an improved expectation on the outlook for the economy, with respondents anticipating improved business conditions in the next six months. However, the survey report also noted that while more than half of consumers expect to see their incomes grow over the next year, only 18% expect their income growth to exceed inflation.
U.S. income growth slowed in July, and consumer spending barely grew: Consumer spending increased 0.1% in July from a month earlier, with an uptick in outlays on services and long-lasting goods, and a decrease in gasoline spending. The latest numbers reflect a slowdown from June, which saw spending increased by 1%. Meanwhile, the U.S. Department of Commerce also noted in their latest report, that personal income edged up modestly by 0.2% in July, the most since February, led by private wages and salaries.
2022 Q2 GDP revised numbers show economy shrunk, but not as much as previously estimated: The economy contracted at an annual 0.6% pace in the second quarter, as high inflation and rising interest rates weakened U.S. growth. Initially, the government had said gross domestic product had shrunk at a 0.9% clip in the three-month span covering April to June, but their revision showed stronger consumer expenditures and more investment in business inventories than previously reported. Household spending, which accounts for roughly 70% of the economy, improved by 1.5% in the spring instead of 1% reported in the preliminary estimate. Businesses increased profits again after a decline in earnings in the first quarter, with adjusted pretax corporate profits rising 6.1% in the second quarter.
If you're ready to discuss today's market and whether now is a good time for you to buy or sell, give me a call at (562) 900-9430.
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